'Big data' startup Splunk set to go public in busy week for Silicon Valley IPOs

It's shaping up to be a busy week for initial public offerings, and Silicon Valley is leading the charge.

On Thursday, San Francisco-based Splunk -- a "big data" company that helps clients including Facebook, Wal-Mart Stores and the U.S. Army analyze their digital information -- is set to go public. It's one of three valley companies, and one of eight nationwide, scheduled to do so this week.

With big data among the hottest trends in enterprise technology, and Splunk among the first such companies to go public, investor interest in the IPO has been strong even with the broader markets up and down. Though 8-year-old Splunk last week filed plans with the Securities and Exchange Commission to sell 13.5 million shares at $8 to $10 apiece, by Monday the company had hiked that to $13, and Wednesday it bumped the price up to $17 a share.

"IPO investors have shown extreme interest in technology companies with disruptive products and exposure to large, rapidly growing markets," said Paul Bard, director of research for Renaissance Capital, an IPO investment advisory firm in Greenwich, Conn. "Dealing with 'big data' is becoming increasingly important, as it represents an important pain point for enterprises."

In fact, all three valley firms on this week's IPO docket help companies deal with fast-growing and increasingly complex data. Infoblox, a Santa Clara maker of network-control software, and Proofpoint, a Sunnyvale data protection firm, are both slated to begin trading Friday. Bard notes that enterprise software IPOs in recent months have been well-received by investors, and their shares have continued to rise.

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Other pundits say this week's tech-stock debuts could help stabilize the IPO market in advance of Facebook's much-anticipated offering next month. Of the three, Splunk looms as the big kahuna: The $229 million it seeks to raise is nearly double the amount sought by Infoblox and Proofpoint combined.

The company, which plans to list its stock on the Nasdaq exchange under the symbol SPLK, is backed by $40 million from venture capital firms Sevin Rosen, August Capital and Ignition Partners. Yahoo (YHOO) CEO Scott Thompson sits on Splunk's board.

Bard credits Splunk's rapid growth -- revenues have roughly doubled over each of the past five years, to $121 million in its most recent fiscal year -- to "its ability to process massive amounts of unstructured data in real time."

In an interview before Splunk's January filing to go public, CEO Godfrey Sullivan spoke of the massive amounts of "machine data" generated by a host of 21st-century business activities: Web page addresses, radio-frequency ID tags used in retail supply chains, information from GPS satellites and so forth. While all that activity is captured in computerized log files, Sullivan said, "The problem is that data lacks standards." It doesn't fall neatly into the rows and columns of relational databases.

So Splunk's co-founders started asking, "What if you could index all that data and make it searchable?"

Erik Swan and Rob Das first joined forces in the mid-1990s at Taligent, a collaboration between Apple Computer (AAPL) and IBM to develop a next-generation operating system. Swan and Splunk's third co-founder, Michael Baum, later started a search startup that was sold to Infoseek, then became vice presidents in Disney's engineering group after the media giant acquired Infoseek.

Das, in the interview last year, explained how Splunk brings the search concept to data logs. When a website crashed, for instance, "People would spend hours going through log files," he said. A Splunk search focuses on data pegged to a specific time stamp and key terms -- so if a company running the software encounters a problem with its website, the client's IT staff can query for particular machine language that may reveal the error.

And once the error is found and fixed, Das added, the client can save those troubleshooting searches and use them to track ongoing data, in order to prevent the same problem from recurring. Macy's, for example, uses Splunk to monitor its website around the clock and flag potential disk storage problems before they occur, while cellphone carriers use it to see which towers are the busiest and which customers are the heaviest users.

Splunk has more than 3,700 customers around the world, including more than half the Fortune 100, but not all of them pay to use the product. Like other next-gen enterprise software companies such as Box and Yammer, Splunk uses a "freemium" model to hook individual users within a company.

"We decided that instead of targeting CIOs on the golf course, we'd go right at the users who could drive the most data: the system admins in Mohawks," Sullivan said. "They become your sales force," eventually persuading their own chief information officers to spring for the premium version of the product.

Despite gross margins of 90 percent, Splunk has never turned a profit, with its most recent net loss at an adjusted $5 million. For that matter, Bard notes, Infoblox and Proofpoint also have "a limited or no history of profitability," and all three companies face competition from bigger tech players like Hewlett-Packard (HPQ), Microsoft and Oracle (ORCL).

Sullivan's track record may go a long way toward assuaging any concerns Wall Street may have about Splunk. Before taking the company's reins in 2008, he sold Hyperion Solutions to Oracle for $3.3 billion. Before that, the button-down, affable Texan notched nearly 20 years of senior management experience at Autodesk and Apple.

Contact Peter Delevett at 408-271-3638 or pdelevett@mercurynews.com.

BIG WEEK FOR ENTERPRISE SOFTWARE

Three Silicon Valley enterprise software companies are going public this week. Here's how much each hopes to raise -- and which of their investors stand to gain the most.